Peer Skov: Essays in Empirical Public Finance: Tax Incentives and Taxpayer Behavior

This thesis consists of three self-contained chapters on empirical public finance. The chapters are united in their focus on taxpayer responses to changing tax incentives. All three analyses build on raw administrative Danish tax data and all the exogenous variation under study is provided by changes to the Danish tax law. The first paper shows that the reduction in top marginal tax rates provided by the Danish 2010 tax reform caused Danish taxpayers to shift wage income from 2009 into 2010 to reduce their tax payments. We show that this shifting of wage income is important for estimating the elasticity of taxable income (ETI). Using a traditional approach we estimate the ETI to be 0.1 and find that the ETI is increasing in the earnings level. Controlling for shifting, we obtain negligible ETI estimates at all earnings levels. The second paper studies the 2008 introduction of 3rd party information of charitable contributions. We show how the introduction of 3rd party reporting of charity contributions led to a surge in tax deductions claimed and estimate the per-year average amount of forgone tax benefits to be small, but find that many taxpayers repeatedly failed to claim eligible charitable tax deductions under the self-reporting regime. In the third paper I show how the Danish 2009 introduction of a small interest penalty caused a significant advancement in the payment timing of owed taxes. Using administrative tax data I show that the penalty introduction led to a 50-day advancement in payment timing. The evidence further indicates liquidity access as an important factor behind the taxpayer response.